Month in Review: April 2014

By the resi financial blog team, 02 April 2014

Month in Review: April 2014

For the seventh consecutive meeting, the Reserve Bank of Australia has kept the cash rate on hold at 2.5 per cent.

However, it appears even more likely that a rate rise will occur before the end of the year. One factor behind this expectation is the significant increase in housing prices over the past year. House prices rose by 2.3 per cent in March over Australia’s eight capital cities to take the total growth for the first quarter to 3.5 per cent.

Reserve Bank governor Glenn Stevens says while there are signs of a pick-up in activity overseas, within Australia, the economy has been growing at a rate that was below trend in 2013. “Recent information suggests slightly firmer consumer demand over the summer and foreshadows a solid expansion in housing construction,” he says. “Some indicators of business conditions and confidence have improved from a year ago and exports are rising.”

But he adds mining sector investment spending is set to decline significantly and at this stage any signs of improvement in investment intentions in other sectors is only tentative.

The strength of the Australian dollar also continues to be a concern for the Reserve Bank. While it has fallen from its highs of a year ago, over the past few months it has risen again – including a rise of 3.5 per cent since last month’s RBA meeting. Inflation remains at the upper end of the RBA’s target of between 2 and 3 per cent at 2.7 per cent.

The unemployment rate remained unchanged at 6 per cent in February but Mr Stevens noted demand for labour remains weak. He says it will probably rise a little further in the near term and growth in wages has declined noticeably.

The Westpac-Melbourne Institute of Consumer Sentiment showed a fall in March to 99.5 per cent. A reading of below 100 indicates that pessimists outnumber optimists in the consumer survey. The fall may be an indication of concerns around job security.

The decision to keep rates on hold is good news for borrowers. However, while rates remain historically low, it is important to factor in the additional costs if rates do rise as expected.